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Judgment
Under challenge in this writ petition is the order under Section 14AA of the Central Excise Act, 1944 (for short the 1944 Act) as issued qua the petitioner by the Commissioner, Central Excise Kolkata-II Commissionerate / the Respondent No.1 to the petition.
By the order impugned dated the 6th of February, 2017, the respondent No.1 (for short, only the order or, the said order), after quoting Section 14AA (supra) opined as follows:- "I am also inclined to go with observation of the Hon''ble High Court, Calcutta and I do believe that as per the available records, there were huge over utilization of credit by the notice in the later year than in the previous year and accordingly pass the following order. It is to mention here that after reorganization of Commissionerates, Central Excise documents in respect of the assesses working under the jurisdiction of Kol - II Commissionerate is audited by Audit -I Commissionerate on and from 15.10.2015. ORDER I, therefore, in exercise of powers conferred upon me under Section 14AA of the Central Excise Act, 1944 order for "Special Audit" of the Assessee for the period 2000-01, 2001- 02, 2002-03, 2003-04, 2004-05 and 2005-06 (upto Oct''06). I also find that since this is a case of Special Audit, the matter may be dealt with by the Commissioner, Audit-I, Central Excise, Kolkata and hence I direct the case may be transferred to that Commissionerate to initiate further action at their end as stated above."
The short point argued by Mr. Raghavan, Ld. Counsel for the petitioner/assessee company is that the order does not provide reasons enough to support the formation of belief by the respondent No.1 that the utilisation/availing of the credit duty by the petitioner/assessee company falls under any of the conditions stipulated by Section 14AA(1)(a) and (b) thereof. It is submitted that the respondent No.1 acted in irregular exercise of jurisdiction conferred on him under Section 14AA(1) (supra) by mechanically referring the assessment to a special audit under the respondent No.2/the Commissionerate of Audit-I without applying his mind to the detailed written submissions filed by the petitioner before the respondent No.1.
This Court is taken by Ld. Counsel for the petitioner to the order dated 6th December, 2016 passed by a Hon''ble Single Bench in WP 2269 of 2005. The Hon''ble Single Bench was pleased to, inter alia, hold that the revenue respondents/excise department are required to operate under two obligations, viz. to pass a reasoned order and, to discharge the principles of natural justice while exercising powers under Section 14AA (supra).
The operative portion of the order dated 6th December, 2016 is reproduced below:- "In Berger Paints India Ltd. (supra) the provisions of Section 14AA of the Central Excise Act, 1944 were considered. The authorities were found - to have two obligations, that is, the obligation to pass a reasoned order and secondly, to adhere to the principles of natural justice to discharge while an authority seeks to exercise the powers under Section 14AA. In the present case, although the impugned order is a reasoned one, the same was passed without hearing the petitioners. The Commissioner has passed the impugned order. No materials have been placed on record to suggest that the Commissioner had given a notice of hearing to the petitioners. The show-cause notice was issued by a different personnel of the department. The reply thereto has not been taken into consideration by the Commissioner. In such circumstances, I am of the view that the Commissioner has acted in breach of the principles of natural justice in passing the impugned order. In view of the discussions above, the impugned order is set aside. The matter is remanded to the Commissioner for fresh consideration. The Commissioner will be at liberty to afford reasonable opportunity of hearing to the petitioners prior to passing of the impugned order. Needless to say, he will pass a reasoned order. It is expected that the Commissioner will complete the entire exercise within a period of four weeks from the date of communication of this order to him. WP No. 2269 of 2005 stands disposed of. No order as to costs."
Pursuant to the solemn order dated 6th December, 2016 (supra), the petitioner filed a detailed written submission which, however, has unfortunately not been considered by the respondent No.1 in the said order.
Mr. Raghavan points out that the obligation to furnish reasons by the respondent No.1 under Section 14AA is not merely routine. The respondent No.1, in discharge of the responsibility conferred on him both by statute and, by the order of Court dated 6th December, 2016 (supra), ought to have flagged his disagreement with the reasons furnished on behalf of the petitioner since, the reference to a special audit under Section 14AA is not the same as an audit simplicitor under Section 14A of the 1944 Act. The clear prescription for a reference under Section 14AA is for the respondent No.1 to believe, on a reasoned assessment of facts, that the manufacturer of excisable goods has avoided/utilised the credit of duty beyond normal limits or, by reason of fraud, collusion, wilful misstatement or suppression of fact. It is the emphatic contention of Ld. Counsel for the petitioner that the order impugned does not rise above or at least upto the threshold of the requirement of reasons adequate to trigger the reference under Section 14AA, also being made part of the obligations cast upon the respondent No.1 by the order of 6th December, 2016. Arguing for the revenue respondents/excise authority, Mr. Ganguli, Ld. Counsel takes this Court to the disposal of the written submission of the petitioner dated 15th of December, 2005 under Section 14AA. The disposal of the written submission by the Commissionerate, Central Excise Kolkata-II/the respondent No.1 is self-explanatory inasmuch as there is reflection of specific reasons in the initial order directing special audit under Section 14AA. Thereafter, Mr. Ganguli points out, following the solemn order dated 6th December, 2016 of the Hon''ble Court, the respondent No.1 took cognizance of the whole facts both presented by the petitioner/assessee company and, noticed by the previous special audit noticed by the order of 15th December, 2005. The respondent No.1 did not mince his findings while opining: a) that there was huge over utilisation of credit by the noticee (petitioner/assessee company); and b) over utilisation of credit is more evident from the later years of assessment compare to the earlier years.
Arguing that no further reasons than what has been indicated by the respondent No.1 are necessary in the facts of this case, Mr. Ganguli submits that detailed evidence shall be forthcoming only after the special audit and, in the event the petitioner is sure of his returns credit claimed/utilised, the petitioner/assessee company ought not to anticipate worst conclusions.
Having heard the parties and considering the materials placed, this Court must respectfully notice the law on the point of reasons to believe as connected to revenue/fiscal statutes. Reference may be first made to the authority of 1976 (103) ITR 437 (SC), in the matter of Income-Tax Officer, I Ward, Distt. VI, Calcutta & Anr. vs. Lakhmani Mewal Das (Coram: HR Khanna and Hans Raj, JJ). The relevant observations are as follows:- "The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income- tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such nondisclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law."
Next, in 2007 (291) ITR 500 (SC), in the matter of Assistant Commissioner of Income-Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd., the discussion appropo the point is as follows:- "The expression "reason to believe" in section 147 would mean case or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is "reason to believe" but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer."
In the light of the above discussion this Court finds that the respondent No.1 has applied his mind to the record, heard and considered the facts presented in defence of the petitioner/assessee. The reference endorsed by the respondent No.1, to the mind of this Court, crosses the legal threshold required for formation of a belief and, also meets the requirement of natural justice as directed to be observed by the order of 6th December, 2016. The respondent No.1 is under no additional obligation at this stage beyond formation of the belief, to conclusively prove over utilisation of credit. The impugned reference is neither a pretence nor, extraneous to the materials on record.
For the above reasons no reliefs can be extended in this writ petition.
WP 605 of 2017 stands thus dismissed.
There will be, however, no order as to costs.
Urgent certified photocopies of this judgement, if applied for, be given to the learned advocates for the parties upon compliance of all formalities.